Property Management Blog

Tenants often come to the table with assumptions and misinformation. This could be due to a number of reasons. It may be their first time living away from home, they may be ignorant of all of the things that go into running and managing properties, or they may just have preconceived negative stereotypes about the rental process already drilled into their heads.

Whatever the reason, I’ve found that I encounter the same assumptions and misinformation over and over again. Attempting to counter all of this can be difficult, but I feel it’s worthwhile to try. How should we go about doing this? A good start is to make the following points at the lease signing meeting.

13 Things Tenants Don’t Understand About the Rental Process

1. You need renter’s insurance.

Bad things, like fires, floods and break-ins happen. My insurance protects me and my stuff, not you and yours. If you want to protect your stuff, you need renter’s insurance. It is cheap and well worth the peace of mind it brings.

Except—wait a second. What is this odd intersection of liberal economic arguments and Trump’s tax proposal? Something strange is afoot.

The Trump tax plan would in many ways level the playing field between renters and homeowners, something that liberal economists have been pushing for decades. Of course, that’s not necessarily good news for homeowners, investors, and the real estate industry at large. Look no further than the National Association of Realtors spending $10.2 million in the first quarter this year, lobbying Congress against proposals like Trump’s. (That lobbying budget was second only to the U.S. Chamber of Commerce for a single organization.)

And what’s this about a depressive effect on home values, particularly in pricey cities like San Francisco and New York? What’s going on here?

Let’s take a deep dive into some of the weirder implications of Trump’s tax plan for homeowners and real estate investors. You may or may not like what you find, but you’ll probably be surprised by it.

Investing in real estate can be a great way to make some extra money or even support your long-term financial well-being into retirement, but it’s also a costly venture. Those in the know, however, understand that they can offset many of expenses associated with real estate investing through tax deductions. From mortgage interest to repairs, there are many accepted deductions for savvy property owners.

Do you know what deductions you should be taking on your properties? Here are five high-value deductions you don’t want to miss out on.

5 High-Value Tax Deductions Real Estate Investors Shouldn’t Miss

1. Interest Paid on the Mortgage

Very few real estate investors have the capital on hand to purchase properties without taking out a mortgage, and you shouldn’t be penalized for that. That’s why it’s an accepted financial practice to deduct interest paid on the mortgage on your taxes. If you pay any part of the utilities for your rental properties, you can also deduct those costs.

Tenant screening scams are everywhere. If you don’t believe that applicants will come to your table looking to scam their way into a home or apartment that they have no intention of treating reasonably, you haven’t been a landlord for very long. Here are a few common ways we’ve seen other landlords get taken in.

The False Credit Report

It can seem like a nice gesture — the tenant brings their application, a tidy little pile of supporting paperwork, and a copy of their credit report. You just saved yourself the credit report fee! Right? Hell no.

Here’s the deal: this is the era of technology. Any slacker with a $200 refurbished 2005 computer and a free afternoon can whip out a pirated copy of Photoshop and edit literally any document they have. If it gets a roof over their head, why wouldn’t they? After all, it only takes one edit and you can give the faked document to dozens or hundreds of landlords — it just takes one mistake (or a lazy landlord!) to get into a home knowing full well you can’t pay for it.

Evictions are annoying, but they are part of doing business as a landlord. Don’t panic when you need to do an eviction—just move forward with confidence and take care of the problem. Once again, we do recommend you contact an attorney to help you with your eviction, at least until you are confident that you can complete it correctly yourself.

4 Frequently Asked Questions on Evicting a Tenant

1. How long does an eviction take?

In most states, as long as everything goes as planned, an eviction takes about a month. However, in some “tenant-friendly” states, evictions can take up to six months.

Many tenants will request that you “work with them” when their rent is late.

Deciding to work with them is a bit of an art form, and there is a strategy for doing so that won’t leave you in the lurch if something goes wrong. Before we get there, let’s talk about the two most common reasons why rent is usually late.

1. Priorities

There is a common pattern we see with late rent, and it’s caused by the fact that there are more than four weeks in a month. In other words, in April the tenant might get paid on the 3rd and 17th, then in May their paychecks would land on May 1st, 15th, and 29th. June would be the 12th and 26th, and July would be 10th and 24th. As you can see, for those who are paid every other week, paydays come MORE often than twice a month, and tenants sometimes have a hard time getting used to that. In the dates above, the tenant would likely use their May 1st paycheck for rent for May. Then they hopefully would use the paycheck from the 29th of May to pay their June rent.

But then that check on June 26th comes around, and the tenant realizes they still have a full week until rent is due, and they really need that money for something else, so they say, “I’ll just spend this paycheck and use the next one for rent.” But the next one doesn’t come until July 10th, so the tenant calls on the 5th of July and says, “My rent is going to be late because my paycheck doesn’t come until Friday,” as if some freak occurrence caused their paycheck to be delayed. Not placing their rent as a priority in their life is the number one reason why your tenant cannot make their rent payment on time.

80 Questions to Ask BEFORE Hiring Your Next Property Management Company

1. Will I have one specific property manager? Who will be my property manager?

You want to know who will be your specific property manager and know their name. I am all about accountability, and you want to know and meet with your property manager, not just the marketing director or whoever is in charge of new business.

2. Who is the head of the office?

You want to know the broker in case something goes wrong. Brokers have PMs who work under their license, so ultimately it is the head broker who runs the show.

3. How long have you been a property manager?

The length of time is important to know. That being said, a hungry newbie who wants to learn, in my experience, is often times better than the most advanced person, because they care.

4. How many units do you manage?

For me this is more so food for thought because large and small management companies both have their pros and cons. There are benefits to a large office and also to a small office; the key is to know which one you are getting and to make sure you are comfortable with the pros and cons.

5. What is the average length that clients stay with you?

You want a property manager who is in it for the long haul. While this might not be a truthful answer or able to be substantiated, it is still good to ask.

Here are four quick-and-dirty reasons why, if you’re in the market for a residential property manager for your investment rentals, you should hire one who has a rental portfolio of their own.

The PM understands why it's important to control expenses and improve cash flow.

If your goal is to buy and hold long-term rentals, it’s likely that your focus is on generating a decent-to-good cash flow to pocket as passive income, or use to reinvest, or rely on to quit your (perhaps not-beloved) day job real soon. A PM who owns a least a few units and has had to spend money to fix them knows a few things about expenses—for instance, when it’s better to spend more money now to prevent large expenses in the future, or to spend less now to meet more short-term cash flow goals. They’ve seen the hit to their bottom line when they hired the cheapest plumber to fix the ceiling leak and then had to go back and hire the bestplumber to fix that fix. But they’ve also seen the cost savings in buying a lesser-quality product than they would for their own homes to maximize cash flow.

When you purchase a new rental or commercial property with investment intent, you must allocate a portion of the purchase price to improvements and the remaining amount to land. The reason for this practice is that you cannot depreciate land, only improvements. This makes sense because dirt lasts forever.

Depreciation is the reduction in value of a property over time due to the particular wear and tear on the asset. Residential properties are depreciated over 27.5 years, while commercial properties are depreciated over 39 years.

This reduction in value is a current expense, yet no money comes out of your pocket. Sounds like a pretty awesome deal, right? You get to reduce your reported income by your annual depreciation expense without actually paying for anything!

But what is depreciation really? Do you think the IRS, our favorite government agency, would let you have it that easy? I’ll give you a hint: the answer starts with the letter “N” and ends with “O.”

In actuality, depreciation is similar to an interest free deferred loan with no time restrictions. You see, when you sell a property that you have been depreciating, you have to pay a thing called “depreciation recapture taxes” at a 25% rate. This 25% rate is multiplied by the total value of depreciation you have taken over the property’s hold period. So the income you are “sheltering” each month really isn’t being sheltered like you think it is, as you will eventually have to pay a portion of it back. Without prior knowledge (or having a good accountant), you could be in for quite the surprise!

Your first impression when you pull up in front of the unit will give you a pretty good indication of how the rest of the property is going to look. If the flower beds and lawn are overgrown, you see broken blinds in the living room window, and there is a pile of garbage in the backyard, brace yourself before going through the front door. If it looks great from the get-go, then congratulations, the rest should be easy!

When doing the move-out walk-through, inspect the entire property from top to bottom, just like when your tenant moved in. Take pictures (or a video) of everything, including up-close pictures of things you need to remedy; all your visual evidence will come in handy later on if any disputes arise from the tenant regarding deductions from their security deposit.

Things like dusting the trim, wiping down the walls, cleaning out the oven, washing the outside of the appliances, cleaning beneath the refrigerator, and really getting into the corners while deep-cleaning are some common areas tenants miss, so while doing your move-out walk-through, just remember to be thorough so you don’t get stuck with footing the bill for your tenant’s grime.